Stock Market is Overbought in the Short-Term

  • NAS100
  • SPX500

Weekly Chart

As we head into the final calendar month of the year, the US large cap indexes are showing healthy weekly charts. The SPX500 (left) and NAS100's (right) weekly technical indicators are constructive. The respective green 5-week EMAs are bullishly above the orange 10-week EMAs for both instruments and their corresponding momentum-based RSIs are above 50 – which is bullish. The longer the individual RSIs stay above 50, the greater the momentum support for the indexes.

However, the daily charts do suggest that a near term correction may be a risk.

Daily Chart

The SPX500's daily RSI is above 80 (green rectangle), as is the NAS100's RSI (blue rectangle). Above 80 is typically considered as overbought and it is unlikely that the RSI will maintain above this level for a sustained period. As such, a pullback in both indexes is a possibility as their respective RSIs normalise. However, given the strong weekly charts, a pullback may potentially be used by the market as an opportunity to buy into the dip.

Russell Shor

Senior Market Specialist

Russell Shor joined FXCM in October 2017 as a Senior Market Specialist. He is a certified FMVA® and has an Honours Degree in Economics from the University of South Africa. Russell is a full member of the Society of Technical Analysts in the United Kingdom. With over 20 years of financial markets experience, his analysis is of a high standard and quality.

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